With Federal student loan debt in the United States currently exceeding $1.5 trillion, there is a huge market of borrowers who are in need of advice on managing their (potentially very sizable) debt… especially because often those with the largest student loan debts also have the highest post-graduate-school earnings (e.g., doctors, lawyers, etc.), which makes decisions about student loan repayment a very high-stakes proposition. And because of the complexity of student loans, many of these borrowers are looking for professionals with the right expertise to help them avoid heading down the wrong path. As while there are many moving parts inherent in the myriad of Federal student loan programs that impact borrowers, borrowers themselves are often unsure of how different life changes (e.g., marriage, a job change, or living in a different state) may further impact how their student loan plans will affect their financial future.
In this guest post, Ryan Frailich – Founder of Deliberate Finances in New Orleans, Louisiana – discusses how financial advisors can offer value to their clients who have significant student loan debt by acquiring the right expertise, designing a systematic student loan planning process, and developing a business model that incorporates student loan planning into their menu of services offered. After all, the reality is that a thorough student loan plan may potentially help a borrower save tens or even hundreds of thousands of dollars, leaving ample room for advisors to earn a substantive fee for the value they provide (which still amounts to a cost that is a tiny fraction of the potential debt savings). Not to mention the benefits of helping clients understand the different options available to them, how their choices may impact their student loan repayment plan, and how their career and life decisions can affect their overall student loan debt.
In order to offer their clients the most effective student loan advice, advisors need to acquire the appropriate depth of knowledge on the various student loan programs and their rules. While self-study is one option for financial advisors to obtain the subject matter expertise required to provide in-depth student loan planning services, others may wish to pursue the Certified Student Loan Professional (CSLP®) program. The CSLP is the first student loan planning designation designed to guide advisors through the process of helping clients navigate their student loans and addresses essential planning topics, including types of student loans, Public Service Loan Forgiveness, analysis of various student loan programs, and how student loan planning relates to broader financial planning topics. Once advisors acquire the requisite core knowledge, they can then work to design a repeatable process to screen and meet with clients, gather and analyze client data, and develop an in-depth student loan plan.
Depending on their firm’s structure, advisors can choose to build student loan planning into their firm’s own service model, develop student loan planning as a component of ongoing comprehensive financial planning, or offer standalone student loan plans as short-term planning projects. This is often very appealing to high-income, high-debt young professionals, which can be of value for early-stage firms working to build a millennial client base.
A variety of fee models are available for advisors to consider as well, each with distinct benefits and drawbacks. Some commonly used fee models used by student loan planners include flat fees for one-time projects, fees based on the amount of student loan debt (a “debt under management” approach similar to the industry’s popular Assets Under Management approach for more affluent clientele), hourly fees, and fees as an additional expense included as part of a comprehensive financial plan. Accordingly, some advisory firms will build student loan planning to be a profitable service line unto itself, while others may focus on it as a way to profitably serve younger clients now while also planting seeds for later firm growth (as some clients who initially seek one-time project-based plans may come back as long-term comprehensive planning clients, and/or become AUM clients as their student loan debt is repaid and they become asset accumulators, especially in the case of high-debt high-income clients).
Ultimately, the key point is that student loan planning offers financial advisors a wide realm of business opportunities, either for shorter-term or longer-term engagements. For many firms, offering student loan advice can be an important differentiator to attract higher-income, upwardly mobile next-generation clients (i.e., those with high earnings but currently facing high debt burdens, where the impact of student loan advice is significant and so is the long-term client potential). Additionally, establishing expertise in the subject matter can yield client referrals (by becoming known in a niche of student loan planning), and opportunities to collaborate with other financial advisors who need student loan planning expertise – all of which can potentially turn into valuable, long-lasting relationships!